ISMA's response is given below-
21ST August, 2017
Mr. Tejinder Narang
Sub: ISMA's response to newspaper article titled "High sugar prices the new normal"
Dear Sir,
The article written by you in Financial Express on 16th August, 2017, titled “High sugar prices the new normal?” has several factual and logical inaccuracies. I want to clarify some of these points, so that an expert on commodities like you, is aware of the correct data and facts, which will in turn, will ensure that your future articles do not have any inaccuracy.
You have said that net return on sugarcane is 52%, basing your calculation on the retail price of sugar of Rs.42-43 per kilo and sugarcane cost of Rs.230/- per quintal. However, you have not mentioned anything about the processing cost, transport cost, wholesalers as well as retailers’ margin etc. There are several stakeholders involved from the time sugarcane is harvested, till such time it reaches the final consumer, and therefore to simply say that the net return on sugarcane is 52% and is the highest amongst all the crops, with duration of 12 months, without referring to the costs involved at various stages and margins taken, is completely misleading.
You have stated that imported refined sugar will cost Rs.27 per kilo without any duty, and compared with the domestic retail price of Rs.42-43 per kilo, without further mentioning anything about the transportation cost, margin for the importer or the margin for wholesalers and retailers etc. including any tax thereof, till the imported sugar reaches the final consumer. Again, without all these details it would mislead the reader to believe that there is big gap vis-à-vis domestic price.
We further hope that you are aware that the sugarcane prices in India are around 50-80% higher than the other major sugar producers like Brazil, Australia, Thailand etc. Therefore, it is obvious that the cost of sugar produced in India will be higher than the cost of sugar produced by the other sugar producing nations. This fact could have been highlighted in your article when you compare the domestic sugar prices with the global prices of sugar. One needs to calculate the cost of production based on the sugarcane price and then justify whether the ex-mill price of Rs.36-37 per kilo is unreasonable or that it is a very fair return that any sugar manufacturer should expect especially when the all India average production cost is around Rs.34-35 per kilo of sugar.
You have criticised Government’s decision of allowing duty free import of 0.5 million tonnes between April and June, 2017 and then increasing the import duty from 40% to 50% to prevent cheap import. You have said that the decision to increase the import duty is contradictory to the first step of allowing 0.5 million tonnes of import. You need to understand that public policies are not formulated with only one stakeholder in mind and the Government has to also take care of the farmers, which is one of the top most priority of the Government, including the Hon’ble Prime Minister. We also hope that you understand that Indian farmers are small and marginal, having an average holding of 1-2 hectares only, as compared to large holdings in Brazil, Australia, Europe etc. There is need to protect the interests of these farmers too.
You will also recall that several experts on the subject had been suggesting for imports of almost 3 million tonnes since September 2016 on an argument that there is shortage in the domestic market and that the sugar prices would become unreasonable. You will realise that the Government has been careful in deciding on the import quantity, which they did only after being sure of the availability and production upto end of March 2017. It was only after a very detailed deliberation and calculation that the Government allowed imports of 0.5 million tonnes of sugar in April 2017. The decision of the Government should be applauded if you note that the ex-mill and retail prices of sugar in the current season has been very stable, probably for the first time in the last few years.
The decision to increase import duty to 50% can be seen as a confirmation of the Government’s decision that only 0.5 million tonnes of sugar was actually required to be imported to supplement domestic sugar availability. This decision of the Government also needs to be appreciated, if you note that the current average retail sugar prices continue to be at Rs.42-43 per kilo, and also that there is hardly any significant quantum of cane price arrears of farmers this year.
Another important decision of the Government which you could have appreciated in your article is the decision to distribute the import of 5 lac tonnes mostly in South and West India, as per their calculation of deficit. Again for the first time, one has seen such a step taken by the Government.
Lastly, it is a matter of concern that you are speculating on two issues. Firstly, about the Government “contemplating” about another import tranche, and without confirming the same, you have criticised the Government saying it is negating its own decision of increasing the import duty. Secondly, you have gone on to even speculate that unless 1 million tonne of sugar is imported next year, you see higher sugar prices of even Rs.50/- per kilo. You have not substantiated the calculation or the expectation of Rs.50/- per kilo but have simply suggested a number, which confuses the readers. Till now, the market has not given any kind of signal of shortage or that sugar prices are or would become unreasonable.
For your kind information, the average sugar prices in the current season has been the flattest ever that one has seen in the recent past. Taking the retail sugar price of Srinagar or even Andaman or any remote place, where the transportation cost is higher than other places, cannot be the correct indicator of the average sugar price prevailing in the country. We therefore, are surprised that you have referred to the retail price of Srinagar in your article.
You have concluded in your article saying that more import is needed to protect the consumer, completely ignoring the fact that sugarcane farmers also need to be paid their sugarcane price and the sugar industry in India needs to recover their cost. Any decision to unnecessarily bring in cheap imports into India would not only damage the domestic producers and the Indian sugarcane farmers, but in the long run make India dependent on imports for sugar, a commodity in which India is generally self-reliant, except when there is any major drought.
We hope that you will understand the above submissions and accordingly consider the same when you write future articles on sugar or sugarcane.
Thanking you
Regards,
Sanjay Banerjee
Director (Media & Communication)
ISMA